Hacker News Reader

Comment by pg | Hacker News Reader

This sort of scenario is unfortunately very common. The antidote is never to allow acquisition talks to be the main thing you're focusing on. We advise startups who get approached by acquirers to treat it as a background process, and not to take things seriously until the very last stage. If acquisition discussions are just a side show, you can easily terminate them if anything goes wrong. Which, interestingly, probably decreases the chances of things going wrong. M&A guys can smell it when you really want a deal, and that makes them want it less.

View on HN

Although this scenario is very common, it's not common for the story to get shared. Thanks to the entrepreneur that shared it.

One of the reasons that folks don't share their horror stories around M&A is that often, in the back of their minds, they're still hoping that it was all just a big misunderstanding (wishful thinking). They're often also worried about creating a negative impression around the company -- thereby potentially jeopardizing deals with others in the future.

In cases with truly bad faith, the "acquirer" can actually exploit these two things.

They get shared among YC alumni, and acquirers know that, which seems to mitigate the worst abuses.

"which seems to mitigate the worst abuses"

Why is it an abuse? It's business. Somebody can sugar coat and treat someone nicely (not be a dick) but in the end they are going to do what is in their best interest. Everyone does this. (I'm not claiming that some people aren't manipulative or more of an asshole than others.)

If you have to ask why violating an NDA and lying in the context of a financial transaction (aka "fraud") are abuses, no one will ever be able to explain it to you.

Sorry I didn't just fall off the turnip truck as you imply.

From the story:

"but given our waning cash reserves we felt like putting our eggs in this basket and creating a trusting relationship would increase the likelihood the deal would happen"

Naive. They took a chance and bet wrong. If you've been doing business long enough you would realize that a trusting relationship will not trump self interest. And any legal document doesn't mean anything if you don't have the resources to enforce it if the other side wants to get out of it.

"We are a company without the cash to try to enforce the NDA, and The Company knows it since they saw our financials during due diligence."

So they knew they didn't have enough money to enforce the agreement and they knew the acquirer knew that but yet they thought that it wouldn't be possible to have that used against them? That's naive as well.

Additionlly, everyone is assuming that they did steal info and that is a proven fact. It is not a fact. As of the writing of the story nothing has been built and there is no violation. We don't know if the company that "screwed them" ever did anything at all or if there was any abuse. Even if this went to trial (assuming funds were available) there isn't enough info in the story to even begin to make a judgment on who is right here and who is wrong. Companies always have disagreements and things get drawn out legally because each side thinks it is right. Nobody is looking to throw money out the window on clear cut legal cases. Two sides always see things differently.

When you say "violating an NDA" the NDA has not been violated. We have one side of a story. Given the facts this could be abuse or maybe not.

Kudos to the entrepreneur, but of course it would be more interesting and informative if the company was not anonymous, with no mention of the details around their business or the potential buyer.

They surrendered control of the time frame, chiefly by ceding exclusivity but also with the technical due diligence. It's reasonable for a buyer to seek assurances their interest isn't being leveraged to other buyers, but it's too much to expect the seller to close down talks or let the phone ring on new interest.

That leads to stuff like "we'll discuss at the next scheduled board meeting". I don't know practices for this space, but a CEO can convey a meeting on a conference call for something he wants. Once they know they can wait that long, they'll think about whether they really want this -- the excitement cools down, they see other options, they move on.

People are asking how buyers can sense they're in control. One chief thing is the seller's neglect of their own inconvenient but reasonable interests. If a seller is making unreciprocated compromises of their interests to make things easier for the buyer, that says a lot.

> M&A guys can smell it when you really want a deal, and that makes them want it less.

This seems perverse, but I'm guessing that there's some kind of economic intuition these guys have gained from being around deals all the time? Something like, "Wants a deal == needs it == a bad investment." This just seems to confirm that the best way to get money thrown at you is to not have a need for it.

> This just seems to confirm that the best way to get money thrown at you is to not have a need for it.

Law of the jungle: If it runs, chase it. If chased, run.

I was out with an investment banker at a social outing, and I asked him "What's the biggest mistake startups make during the acquisition process?" He said, "Buddying up with their potential acquirer. Once you express strong interest in getting bought, you've just lost all negotiating leverage. You've got to play coy with potential acquirers until the deal is signed."

"Once you express strong interest in getting bought, you've just lost all negotiating leverage. "

Sure if you maintain that strong stance. But you can always change your level of interest and the opposite party will sense that and run to fix the deal. It's a game of chicken at that point but here's the thing. The acquirer is only looking at you and has decided they want what you have. If they didn't they wouldn't be attempting the acquisition.

So look as eager as you want. And then stop being prompt and act as if something else is going on and watch and see what happens. The investment banker doesn't want to loose a deal.

I work in an investment bank and I'm not sure how much power the banker has in the deal process. A lot of it is dependent on the buyer, less on the banker. Bankers get paid based on the size of the deal. We usually take 2-3% of the transaction, but if the deal is huge, you might see that number fall down to 1% or so. Usually, its the buyer that hesitates and decides not to buy it. The banker would usually try to get the firm to purchase it, so they can get paid the commission.

It's not that different from any other type of selling. If you ask someone out, they'll probably say no if you seem to want to go out with them a little too much. Or at a job interview, you'll probably be told no if they sense that you want the job a little too badly.

The reason being that people tend to wonder why it is that you want it so bad, and they tend to assume that's because you can't get anyone else to acquire/go out with/hire you.

"M&A guys can smell it when you really want a deal, and that makes them want it less."

That smell thing is really important.

Essentially anytime you are dealing with someone who does more of a particular transaction or negotiation than you do they will be able to sense and pickup things that you would never think of because of the quantity and quality of patterns they've experienced in the past.

We find this happens all the time with domain sales. Buyers say and do all the wrong things which cause a seller to be able to get the most for a particular domain name. I've seen it also happen in real estate as well as other negotiations (buying cars as another example).

It's hard for the less experienced person on one side of a transaction to avoid this since they don't know the signals they are setting off.

Can you give us some obvious smells apart from "too eager to close"?

Unfortunately some of them can involve just being easy to work with. A classic bizdev trick: schedule meetings at inconvenient times or in inconvenient circumstances; if the other party accepts, they want a deal to happen.

Similar logic applies to contact negotiations. Which sucks, because being fully diligent is can also set the "hard to work with" bit and kill the deal too.

It's likely that the best way to handle this is the simplest: renice the M&A conversation down to 19 or 20, beneath everything else you're doing; be legitimately annoying to work with, conveying the impression that you don't need the deal because it's the truth.

"A classic bizdev trick: schedule meetings at inconvenient times or in inconvenient circumstances; if the other party accepts, they want a deal to happen."

Very true. Of course if a party makes this mistake they can easily put the fear of god in the other party by changing their pattern of response.

If you tend to reply in a quick fashion and appear very eager and then all the sudden there is radio silence the other side will intuitively know something is wrong. (Ever have that happen with dating where the girl all the sudden doesn't respond as quickly and you know something is up..)

The mistake that most sellers make is assuming that someone's eagerness is locked in. That a party doesn't change their mind or doesn't have another circumstance come up that makes a sale unlikely at any price. (Similar to what the OP was saying.)

No deal is done until the fat lady sings.

The domain in the example I gave I recognized would have no other buyers essentially. So I advised to close the deal as quickly as possible even though a little money was left on the table. But many sellers simply won't take that advice they are gamblers.

Whoa I would not have picked up on that, but the strange timing should have been a tip off.

As an aside to answering your question the toughest thing is dealing with someone overseas because you can't sense the nuance in their writing or (if verbal) their voice. The english many times is broken and that messes up all the patterns.

Here's an example that is playing out right now.

Name offered for $6000. No other buyer for this name. If it doesn't sell it will probably never sell for 10 years.

First offer from buyer:

"Thank you for that. I could do $1200, but that is not really in his ballpark. If he changes his mind, please let me know. You are welcome to take that offer to him."

What he did right: Made offer and made it seem like that's pretty much the range he will pay. "If he changes his mind let me know" as if he is going away. So a seller would think he can probably get $2500 out of this type of guy maybe for this name. (Nobody ever makes the first offer the best offer.)

What he did wrong: No time frame to transaction. No sense on the sellers part that he could loose the deal. No sense that other names are even being considered (even though that's normally bs and can backfire).

Reply from seller:

(A short sales spiel showing why others would want the name) ending in "he might do $4000 but I have to clear that...".

Reply from buyer:

"Please ask him about how low he will go. I will see if I can get there."

What he did wrong: He essentially didn't barf at the $4000 for the name. He gave no kickback. So seller knows he can get that amount most likely. And maybe more.

Seller:

"Ok I will find out" (or something to that effect).

Buyer writes back quickly again:

"I am feeling pretty good about that. I think we can do it or very close to that."

Somewhat good: "I think we can do it or very close to that". That essentially says he will pay the price but he gave himself a little wiggle room.

Bad: He replied to quickly to the email showing he was very eager. Time and tempo are important.

Then he writes back again a minute later to say he is ok with the escrow company and will write back soon. So he completely telegraphed his intentions. Even though he hasn't really agreed to purchase.

By the way this was a lawyer as a buyer. And this is the same stuff that happens with 6 figure domain sales as well.

So the deal right now is going to happen at $4000. The seller is fine with that price and doesn't want to loose the deal for fear he will get nothing.

In this case the buyer overpaid if he handled it correctly he could have had this name for $1500 about.

And as mentioned multiply by 10 and the same stuff happens.

Furthermore, you can almost always convert a potential sale transaction into another financing round, allowing yourself to "let it ride" on similar terms. The fact that someone wants to buy you makes you more appealing, and means a potential investor can staple his cover sheet onto the front of someone else's due dilligence process.

Reply on news.ycombinator.com